Should your credit score be on your bank statements?

Banks urged to make the three-digit numbers more visible

KaitlynWells

Are truly free credit scores on the horizon? Maybe, if credit-card companies heed the suggestion of the government that they should provide all consumers with free access to their credit scores.

Last week — more than a decade after the Fair and Accurate Credit Transaction Act of 2003 made it possible for consumers to receive a free credit report once every year from each of the three national credit reporting agencies — the Consumer Financial Protection Bureau urged the nation’s top credit-card companies to make credit scores readily available to consumers free of charge.

Richard Cordray, director of the CFPB, the watchdog agency created in the wake of the 2007-08 financial crisis, sent a letter to the top executives of the nation’s largest credit card companies requesting that they provide the scores after the agency released a report which found that accuracy issues are No. 1 on the list of credit-reporting complaints received from consumers.

Worse, errors can go unnoticed for years, as fewer than one in five Americans checks his or her credit report annually, reports the CFPB. “Making consumers’ credit scores freely available on their monthly statement or online makes it easier for them to spot problems with their credit report,” Cordray said in a release.

Brigitte Madrain, a professor of economics at Harvard University, says she thinks changes in how often consumers access their credit reports won’t happen overnight, but that printing the scores on monthly bills would make a big difference. “The good thing about a bill is that it does have to get paid, so there is some hope that scores would get noticed,” Madrain says.

One problem with the plan, critics say, is that there’s more than one score. The FICO score, created by the Fair Isaac Corporation, is probably the most popular (10 billion FICO scores were purchased last year) and is based on information provided by all three credit bureaus. But there’s also the VantageScore, which was created by the three credit reporting bureaus (Equifax, Experian and TransUnion) in 2006, and is also widely used by lenders. And there are at least 11 other credit scores promoted on various websites. Plus, with 36 billion pieces of credit reporting data flying throughout the ether, any given score can change rapidly. There’s an average of 15 changes to a credit file each month for every consumer.

While the letter doesn’t specify which score companies should use, it points out that some credit-card issuers have already begun offering free scores.

As it happens, all of them are offering the same score: the FICO score. Thanks to the FICO Score Open Access program, a service for lenders to share previously purchased FICO scores with their customers for free, Discover was able to begin offering FICO scores to some cardholders in November. Barclaycard US and First Bankcard cardholders also receive their scores through Open Access. In total, 25 million cardholders now receive their FICO credit score for free through this program, says FICO spokesman Anthony Sprauve. And Open Access won’t be limited to credit-card companies, he adds. FICO is in talks with major banks, mortgage lenders, and auto lenders as well. “Our goal is that every consumer in America will be able to access their FICO score through the lender,” Sprauve says.

Since FICO doesn’t charge for the Open Access program, it isn’t reaping additional fees from the initiative. But some critics say there could be a long-term goal at play: as FICO scores gain wider exposure, more consumers could seek to buy them.

Perhaps not surprisingly, companies that calculate other scores are concerned about the idea that one credit score might end up dominating the marketplace. “We believe the score market should be competitive and if any one score becomes the de facto score that is provided, we don’t think that’s in the best interests of consumers,” says Norm Magnuson, spokesman for the Consumer Data Industry Association, which represents the major credit bureaus.

But would a “de facto” score emerge? CFPB director Cordray points out that companies that currently include credit scores on statements, like First Bankcard, obtain them in their normal course of business anyway. Thus, whichever credit-score model an institution regularly uses should be sufficient to accommodate the CFPB’s request.

However, the CFPB cares about more than just the three-digit credit score. It’s also requesting that agencies provide educational information to help consumers understand their scores. Barrett Burns, the CEO of VantageScore Solutions — the company that annually validates the VantageScore — agrees that credit-score education is an important factor, as credit scores can get confusing. “They should know more about how credit is extended and how scores work, which then would influence their credit score,” he says.

Behavioral-economics expert Stephan Meier agrees that consumers don’t always know what their credit score means. “Say your score changed from 630 to 620,” explains the associate professor at Columbia Business School. “You might ask, ‘Is that a mistake or a natural fluctuation?’ The score itself is such a complicated algorithm, it’s very difficult to know what change in your behavior affected it.”

Indeed, some financial institutions already provide supplemental information. “There are a variety of ways banks work to educate their customers and help them make the right choices,” said Ken Clayton, the chief counsel of the American Bankers Association, in a statement. “That said, it seems inappropriate for a government agency to endorse one ‘good idea’ as a best practice and seek to impose it on everyone.”

Economist Madrain believes some pushback originates from institutions that are more concerned with their bottom line, rather than their customers. “If you’re a bank and most of your customers have low credit scores, and the way you make money is through late fees, then a highly effective program could cause profits to go down,” she says, pointing out that some financial institutions have been critical of the CFPB since its creation.

Despite the potential for decreased profits, some banks, like Bank of America, J.P. Morgan Chase and Wells Fargo, among others, do at least point consumers to online portals where they can view, manage, and improve their credit scores. Often, these portals link to AnnualCreditReport.com, the hub where consumers can obtain their credit report (though not their credit score) from each of the three agencies once a year for free.

But consumer advocates don’t think it’s enough, and agree with the CFPB’s call. “Consumers shouldn’t have to pay to find out their credit score,” says Pamela Banks, senior policy counsel for Consumers Union, the policy and action division of Consumer Reports, in a statement. “They deserve free access to the same scores lenders use to evaluate how much they pay for credit.”

Sprauve adds, “Ultimately, we all want the same thing, which is smarter, more informed consumers.”

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